Notably, the inception of the Carbon Credits Trading System began with the Kyoto Protocol, an international treaty adopted in 1997. In this international agreement, more than 170 countries promised to work toward reducing the human impact of climate change. Ideally, this system creates measurable improvements in carbon dioxide emissions through economic penalties and rewards.
On that note, Carbon Markets have been around for roughly 25 years, but many people are unaware of what they are. Nor do they understand the markets’ role in mitigating and fighting global warming. Interest in carbon markets isn’t slowing down anytime soon. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) says the carbon credit market’s value could reach $50 billion by 2030.
For example, it’s essential to realize that cloud computing, Cryptocurrency Wallets, and blockchain technology are often presented as critical technological advancements for many industries. Still, this doesn’t mean these digital technologies are without faults. Cryptocurrencies require energy, especially those relying on Proof-of-Stake (PoS) and Proof-of-Work (PoW) consensus mechanisms.
Carbon credits offer a realistic way for those mining digital currencies to offset their energy requirements. The development of carbon credits and similar mechanisms came in response to concerns about climate change. Their essential purpose is to reduce greenhouse gas emissions or GHG emissions. With that in mind, let’s look at how Carbon Credits work and how effective they might be.
Understanding What Carbon Credits Trading Entails In The Green House Business
Regarding Carbon Credits Trading, a credit gives the holder the leeway to emit greenhouse gasses equal to roughly one ton of carbon dioxide. Carbon credits are divided into two categories: the voluntary carbon market and the compliance market. In most cases, Governmental organizations issue compliance market carbon credits for trading to cap emissions produced by most businesses.
Governments set caps on emissions produced by specific industries and provide applicable businesses with credits representing the prescribed emission limits. When companies exceed the cap, they must buy credits. However, they can sell the extra credits on the carbon credit market if they produce fewer emissions than permitted. This system is known as the cap and trade market.
The 2021 United Nations Climate Change Conference in Glasgow included discussions to refine and implement the carbon credit systems. It creates financial incentives to limit carbon emissions. Voluntary market carbon credits are made by projects that reduce greenhouse gas emissions. Examples of such projects are preserving rainforests and planting trees on barren land.
Carbon markets are worldwide, including California, which has its own market. Credits represent one ton of carbon dioxide removed from the atmosphere and can be purchased by businesses that produce emissions. By buying them, the company helps fund emission reductions. Intermediaries can sell them, trade them on the open market, or sell them directly by the project generator.
The Best Practices For Companies To Engage In Carbon Credits Trading
The 1997 Kyoto Protocol International Treaty outlined the framework for using a carbon credit system to reduce greenhouse gas emissions. Although many countries withdrew from the Kyoto Protocol for various reasons, many later became involved with the Paris Agreement, a separate treaty to combat climate change. Businesses in specific industry sectors must aim for one thing.
They should use carbon credits representing the carbon dioxide and other greenhouse gasses they produce annually. A company that exceeds its greenhouse gas cap must buy compliance market credits to increase its allowance. On the other hand, companies with verifiable emissions reductions may be able to sell some of their carbon credits. This system incentivizes businesses.
In such a way that they can easily monitor their carbon emissions, known as cap and trade. The Paris Agreement included a process for countries to cooperate to achieve their emission reduction targets voluntarily. A country (or countries) could transfer carbon credits earned from reducing its greenhouse gas emissions to help one or more countries meet climate targets.
Carbon emissions rights can be sold on various marketplaces—internationally, at the country, state, or local level. Technically, the more significant, wealthier nations effectively subsidize the efforts of poorer, higher-polluting countries by buying their credits. But over time, those more affluent are incentivized to reduce their emissions so that they don’t need to buy as many Carbon credits.
How Easy Is It To Get Started Into The Carbon Credits Trading Marketplace?
Whether a company is trying to sell carbon credits in the compliance or voluntary carbon market, they first need a third-party auditor to verify the validity of their emissions reductions. Each credit typically represents one metric ton of carbon dioxide removed from the atmosphere. Once the carbon reduction is confirmed, the business can quickly sell its excess credits.
More so using the appropriate compliance market. This trading mechanism incentivizes businesses with low emissions production while penalizing those with high emissions production. Still, it can be cheaper for significant greenhouse gas emitters to continue business as usual and purchase carbon offsets later. Carbon credit prices vary from market to market and can be volatile.
They behave just like the stock market or Cryptocurrencies trading marketplaces. EU ETS carbon offset credits traded at around $72 in October 2022, down $25 from a few months earlier—California carbon market credits sold for approximately $29 in October 2022. The notion is to incentivize each nation to cut back on its carbon emissions to have leftover permits to sell.
Nations that reduce their emissions more than they pledge to receive credits to sell to countries where cutting their emissions is costly. Many regional exchanges can be used for carbon trading. Some of the largest include Xpansiv CBL, based in New York, and AirCarbon Exchange, based in Singapore. The largest is the Shanghai Environment and Energy Exchange, which opened in 2021.
Getting To Know What The Voluntary Carbon Trading Marketplace Entails
Voluntary carbon markets allow businesses and individuals to improve their carbon footprint and help in the fight against carbon gas emissions and global warming effects. Unlike compliance markets, these markets let companies trade voluntary carbon credits, even if governments don’t require them to reduce emissions. The voluntary market also offers other beneficial measures.
It allows landowners, farmers, and environmental project developers to monetize their carbon offsetting efforts. For example, landowners can receive carbon credits in line with the tons of carbon dioxide their land sequesters. These landowners must work with third-party auditors to ensure their carbon capture efforts qualify for creating new credits before receiving and selling them.
Numerous projects create and sell carbon credits. For example, CBL Nature-Based Global Emissions Offset (N-GEO) futures sell credits from agriculture, forestry, and land-use projects. These credits traded at around $6 in October 2022. The CBL Core Global Emissions Offset (C-GEO) futures sell credits generated from energy solutions and other tech-based offsetting projects.
Typically, credits with extensive verification standards are worth more than those with relaxed standards. Voluntary carbon markets give cryptocurrency companies like Hedera a straightforward way to achieve carbon-negative operations — on their initiative. Additionally, these markets can play a significant role in reducing greenhouse gasses and help in mitigating global warming.
Can You Trade Voluntary Carbon Credits In The Compliance Marketplace?
Like compliance credits, voluntary carbon markets are driven by supply and demand. These credits typically lack the governmental scrutiny associated with compliance credits. For this reason, voluntary market credits cannot be sold in the compliance market. However, voluntary entities can occasionally purchase compliance market credits. It’s up to third parties to stay compliant.
They must ensure that the credits are related to verifiable emission reductions. In many cases, more demand for recognition is associated with trustworthy verification processes. Projects typically have to adhere to specific standards before generating voluntary carbon credits. Many carbon-reduction projects adhere to the Verified Carbon Standard, which requires adherence to rules.
For instance, reductions must be measurable, independently verified, unique, and permanent. Projects with impermanent reductions must have mechanisms in place to compensate for reversals. Other projects adhere to the Gold Standard, a flexible program that sets standards based on the project’s goals and scope. A wide-scale urban city development project will likely require more effort.
It requires more than a small, clean-cooking initiative. Scaling voluntary carbon markets to meet the rising demand for carbon offsets is essential for these markets to stay popular. DLTs like Hedera Hashgraph could be instrumental in scaling the voluntary market and solving known issues. Let’s consider the compliance market tokens the European Carbon Credit Market issued sometime back.
They traded around $60-$70 in late Q2 and Q3 of 2022. Still, these credits cost about $100 each in early Q2 of 2022. Credits issued by the California Carbon Credit Market traded around $26 in September 2022 but hit $32 in August 2022. Meanwhile, Hedera partnered with ServiceNow to manage carbon credit data and reduce problems associated with the carbon credit system.
The Notable Carbon Credits Trading Oppositions Surrounding The Market
Per the Africa Carbon Markets Initiative (ACMI), the carbon credit market has received valid criticism over the years. Many believe it functions as a bandage because it doesn’t force businesses to reduce carbon production. Others think too many loopholes exist, such as counting the same carbon credit twice. While it’s true that carbon markets aren’t perfect, they seem to make a difference.
For example, California reduced its statewide emissions by 5.3% between 2013 and 2017, partly thanks to its cap-and-trade system. Selling carbon credits is easier than you might think, although there are numerous adherence hurdles that you’ll have to overcome. Notwithstanding, the voluntary carbon market is generally more accessible and easier to use than the compliance market.
Although Hedera isn’t required to reduce its greenhouse gas emissions, it is committed to staying carbon-negative through low energy usage and other carbon offsetting efforts. Hedera purchases carbon offsets quarterly to improve its carbon footprint. Carbon offsetting projects like DOVU build on Hedera because of its low, predictable fees. DOVU enables landowners to tokenize their land.
Primarily, that’s if they’ve used it to sequester carbon. Hedera is one public distributed ledger company that is not waiting for direction. One thing is for sure: It’s committed to reducing its carbon footprint by quarterly purchasing carbon offsets and listing them for trading. For such reasons, businesses and individuals can buy tokenized carbon credits to reduce their carbon footprint.
In Conclusion;
Twelve states formed the Regional Greenhouse Gas Initiative to cap and reduce carbon emissions from the power sector. Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Pennsylvania, Vermont, and Virginia formed the cooperative. The European Union has its own emissions trading system as well.
When countries use fossil fuels and produce carbon dioxide, they do not pay directly for the implications of burning them. They incur some costs, like the price of the fuel itself, but other fees are not included in the fuel price. These are known as externalities. In the case of fossil fuel usage, these externalities are often negative; the product consumption adversely affects third parties.
Markedly, registering with an exchange is the first step in trading carbon credits. Several entities are available but are generally limited to large companies and government entities. You’ll also need a bank account supporting carbon credit trading. A typical urban shade tree will store approximately five tonnes of CO2 for forty years, generating $12,500 in revenue at $10/tonne of carbon.
Other More Related Resource References:
- What Are Carbon Markets And Why Are They Important?
- How To Make Money Producing And Selling Carbon Offsets
- Saudi Firms Buy 2.2m Tonnes Of Carbon Credit In Nairobi Auction
- Kenya Opens A Path To Carbon Trading: Proposed Climate Change Bill
- How Kenyan Coastal Villagers Are Cashing In On Carbon Credits Trading
Whether buying and selling carbon credits on the voluntary carbon market for a profit — similar to how you’d make money in the stock market — or creating and selling carbon credits, you can earn cash with carbon credits using proper channels. And you don’t have to be a large business to earn these credits, either. Let’s gradually reduce our carbon emissions and mitigate global warming.
In other words, participating in carbon markets can benefit buyers and sellers of carbon credits. For buyers, carbon credits can help them achieve their emission reduction goals, enhance their reputation, attract customers and investors, and support sustainable development. However, some critics argue that carbon credits may not effectively lower emissions to meet global climate goals.
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